PHARMACEUTICAL INDUSTRY Despite problems, Merck's chief exec remains optimistic

Analysts warn that Merck is lacking new drugs to introduce.
TRENTON, N.J. (AP) -- The problems besetting pharmaceutical giant Merck & amp; Co. also plague most of its competitors: falling profits, patent expirations, generic competition, the lack of new blockbuster drugs and pressures to make medicines more affordable.
But the contrast to the heady days and double-digit profit growth of the 1990s is particularly striking at Merck, which has fallen in just a few years from the world's biggest drugmaker to No. 3 as competitors merged and leapfrogged ahead.
"Size is not important in this industry. [Revenue] growth is," said Raymond V. Gilmartin, Merck's chairman and chief executive since 1994.
Defended strategy
Gilmartin, who said he is working on choosing a successor for when he retires in 2006 at age 65, defended the company's longtime strategy of going it alone and steadily increasing research spending, even in lean years.
"The key to success in this industry is novel medicines and medicines that are priced competitively," he said.
But this fall Merck canceled testing of the fourth drug in mid- or late-stage development since February, one of which was expected to be its first entrant in the lucrative anti-depressant market. Merck also announced an unprecedented layoff of 4,400 workers -- 7 percent of its global work force -- as part of a drive to make the company more efficient.
"It's unlikely that we'd see any more cuts of that scale," Gilmartin said.
Earnings
Meanwhile, earnings have been flat or lower for two years, and the company has come up short of analysts' forecasts on earnings per share the last two quarters. Three major drugs, including heartburn medication Pepcid, have lost patent protection in recent years. Merck's stock is trading in the $43 range, less than half the $92 peak shares hit at the end of 2000.
In August, Merck ended up spinning off its huge prescription benefit management subsidiary, Medco Health Solutions, as a tax-free dividend to Merck stockholders after repeatedly postponing plans to sell Medco shares in an initial public offering. That change was forced by weak market conditions and media reports on conflicts of interest between the parent and child.
But Merck, established in New York City in 1891, has been in tighter spots before and bounced back.
Recently, it pleased analysts with a forecast that its earnings per share will rise about 7 percent next year.
"Companies like Merck don't live year to year or quarter to quarter," said independent pharmaceutical analyst Hemant Shah of HKS & amp; Co. of Warren.
Setbacks
He said Merck has had numerous setbacks, particularly in 1983 and 1984, when many products in testing failed to work as expected and a cardiac drug launched with great fanfare was a commercial flop. The company recovered, rolling out blockbusters including Prinivil and Vasotec for high blood pressure, and basically created the cholesterol drug category, Shah said.
"One shouldn't underestimate Merck because at the end of the day, they still have some of the brightest scientists working for them," he said.
Analysts have been warning that Merck doesn't have enough significant new drugs likely to be approved before its $5 billion-a-year best seller, the cholesterol reducer Zocor, loses patent protection in 2006.
"They are essentially in a situation where the cupboard appears bare," said Mara Goldstein, a pharmaceuticals analyst at CIBC World Markets Corp.
Goldstein said that there are few drugs in late-stage testing available for licensing by Merck or its competitors, adding that Merck should have been doing a better job on such deals in recent years.
"Not going out and pursuing products in a way that competitors like Novartis and Pfizer have done has placed them at a disadvantage," she said.
Merck officials, however, note that in the last two years they have made about 80 deals for research alliances or to license rights to other companies' experimental compounds. That's about four times the number of deals completed in 1999.